New York state's main banking regulator said on Wednesday it had teamed up with card payment companies Visa Inc and MasterCard Inc to curb illegal payday loans through debit card transactions.
The Department of Financial Services said it would provide information to the card companies about payday lenders that might be using debit networks to recover illegal loans.
Visa and MasterCard will then take action to block these transactions, the department said.
"By working with us to root out this illegal conduct, Visa and MasterCard have stepped up to the plate and shown how private companies can work alongside state government to protect vulnerable New Yorkers," New York Governor Andrew Cuomo said in a statement. (link.reuters.com/tab98v)
Benjamin Lawsky, the state's superintendent of financial services, also sent cease-and-desist letters to 20 additional payday lenders, the department said.
Payday loans, which are short-term borrowings, are usually taken by employees before they get their paychecks and are paid when they receive their salaries.
Annual interest rates on these loans, taken mostly by low-income workers, can vary between 100 percent and 650 percent.
Visa's shares were little changed at $202.25 in afternoon trading on the New York Stock Exchange, while MasterCard's shares were up 0.8 percent at $72.67.
(Reporting by Tanya Agrawal in Bangalore; Editing by Kirti Pandey)